Written by Financial Daily
Tuesday, 13 October 2009 11:26
CIMB Research has maintained that PROTON HOLDINGS BHD [] is a trading buy at RM4 with a target price of RM6.05, stating that recent reports of DRB-HICOM BHD []’s bid for a 32% stake in the national carmaker wasn’t unexpected.
“Overall, we are neutral on DRB-Hicom’s bid for Proton. While there is potential for synergies, we do not see how DRB-Hicom, a conglomerate with diverse operations, will be able to transform Proton into a globally competitive entry,” said CIMB.
While CIMB is encouraged by Proton’s recent turnaround, the research house believed that a tie-up with an experienced and reputable foreign partner is what paves the way for technological exchange, and that is what national carmaker needs to stay ahead in the competitive industry.
“We do not deny that there is scope for synergies as DRB-Hicom’s Edaran Otomobil Nasional is a dealer of Proton cars and its component companies also supply parts to Proton. But beyond that, a sale to DRB-Hicom, which is largely a car assembler, would mean minimal, if any, TECHNOLOGY [] enhancement for Proton,” said CIMB.
The research house was more positive on the reported potential tie-up between Proton and Volkswagen.
“Proton’s partnership and takeover talks have driven its share price up by close to 30% over the past month. Apart from partnership talks with Volkswagen and DRB-Hicom’s interest in Proton, the latter’s chairman Datuk Mohd Nadzmi Mohd Salleh has reportedly given its backing to any potential management buyout (MBO) of the national carmaker. We view the current interest in Proton as a positive indication of Proton’s inherent value,” said CIMB.
The research house is maintaining its earnings forecasts on Proton and target price. For FY10 CIMB is expecting the company to continue making a loss of RM29.5 million. Proton recorded a net loss of RM320.3 million in FY09.
However, CIMB is expecting Proton to be profitable in FY11 and FY12. It forecast net profits for FY11 and FY12 to come in at RM50.2 million and RM108.8 million respectively.
“Reports on DRB-Hicom’s bid for Proton could result in counter bids from other parties or more news flow that may excite the market, both of which would be positive for the carmaker’s share price,” said CIMB.
CIMB also took note of reports concerning the delay of the National Automotive Policy (NAP), which was slated to be revealed this month.
“The approved permits (AP) issue was quoted as the reason behind the delay of the revised NAP. This did not come entirely as a surprise given the sensitivity of this long-standing issue. The AP system, which was created in 1970, was supposed to be phased out by 2010.
“Although we think that the abolishment of the current AP system is positive for the industry... we feel that there is a possibility that APs are here to stay though the authorities may come up with a different mechanism to replace the current system where the APs are given out free and are vulnerable to exploitation. The new system should benefit the government in terms of tax revenue and possibly Malaysians in terms of cost savings,” said CIMB.
Proton closed at RM4.01, up one sen.
Tuesday, 13 October 2009 11:26
CIMB Research has maintained that PROTON HOLDINGS BHD [] is a trading buy at RM4 with a target price of RM6.05, stating that recent reports of DRB-HICOM BHD []’s bid for a 32% stake in the national carmaker wasn’t unexpected.
“Overall, we are neutral on DRB-Hicom’s bid for Proton. While there is potential for synergies, we do not see how DRB-Hicom, a conglomerate with diverse operations, will be able to transform Proton into a globally competitive entry,” said CIMB.
While CIMB is encouraged by Proton’s recent turnaround, the research house believed that a tie-up with an experienced and reputable foreign partner is what paves the way for technological exchange, and that is what national carmaker needs to stay ahead in the competitive industry.
“We do not deny that there is scope for synergies as DRB-Hicom’s Edaran Otomobil Nasional is a dealer of Proton cars and its component companies also supply parts to Proton. But beyond that, a sale to DRB-Hicom, which is largely a car assembler, would mean minimal, if any, TECHNOLOGY [] enhancement for Proton,” said CIMB.
The research house was more positive on the reported potential tie-up between Proton and Volkswagen.
“Proton’s partnership and takeover talks have driven its share price up by close to 30% over the past month. Apart from partnership talks with Volkswagen and DRB-Hicom’s interest in Proton, the latter’s chairman Datuk Mohd Nadzmi Mohd Salleh has reportedly given its backing to any potential management buyout (MBO) of the national carmaker. We view the current interest in Proton as a positive indication of Proton’s inherent value,” said CIMB.
The research house is maintaining its earnings forecasts on Proton and target price. For FY10 CIMB is expecting the company to continue making a loss of RM29.5 million. Proton recorded a net loss of RM320.3 million in FY09.
However, CIMB is expecting Proton to be profitable in FY11 and FY12. It forecast net profits for FY11 and FY12 to come in at RM50.2 million and RM108.8 million respectively.
“Reports on DRB-Hicom’s bid for Proton could result in counter bids from other parties or more news flow that may excite the market, both of which would be positive for the carmaker’s share price,” said CIMB.
CIMB also took note of reports concerning the delay of the National Automotive Policy (NAP), which was slated to be revealed this month.
“The approved permits (AP) issue was quoted as the reason behind the delay of the revised NAP. This did not come entirely as a surprise given the sensitivity of this long-standing issue. The AP system, which was created in 1970, was supposed to be phased out by 2010.
“Although we think that the abolishment of the current AP system is positive for the industry... we feel that there is a possibility that APs are here to stay though the authorities may come up with a different mechanism to replace the current system where the APs are given out free and are vulnerable to exploitation. The new system should benefit the government in terms of tax revenue and possibly Malaysians in terms of cost savings,” said CIMB.
Proton closed at RM4.01, up one sen.
